Commodities Daily - February 15, 2021

> Oil spikes amid US supply fears and Middle East tensions. This morning, Brent spiked $1/bbl to $63.5/bbl on fears that cold weather in Texas may disrupt flows from America's largest shale patch, as well as reports that a Saudi-led coalition had intercepted an explosive-laden drone heading toward the kingdom. This has increased the supply risks at a time when commodity and equity markets are getting a boost from vaccine and US stimulus-driven optimism. Today, investors will eye a short five-day Urals crude export program for Russian ports in March. Meanwhile, the US President's Day holiday today pushes the weekly inventory reports back a day this week. Although Brent may extend its gains and reach resistance at $64.3/bbl today, in our view it is likely to consolidate just above support at $63/bbl after its recent rally, with an unlikely break below potentially causing a fall into the $62.2-62.8/bbl range.> Gold trades sideways while US Treasury yields rise along with inflation expectations. We think this week looks mixed for gold, with the main events being the Fed meeting minutes, eurozone GDP and preliminary DM PMIs. We expect bullion to trade within a $1,801-1,840/oz range this week. Upbeat DM PMI data on Friday could push gold above $1,840/oz and consolidation within a $1,850-1,870/oz corridor. Downbeat data could cause gold to retest $1,783/oz support, though we consider this as unlikely.OIL SPIKES AMID US SUPPLY FEARS AND MIDDLE EAST TENSIONSAfter trading sideways in the $60.5-61.0/bbl range during the first half of the day on Friday, front-month Brent began to surge toward $62.8/bbl, with most of its gains coming during US trading hours. Hopes for US stimulus, which promises to boost the economy and fuel oil demand amid the OPEC+ supply cuts, continued to provide tailwinds for oil prices. On Friday, US President Joe Biden turned to a bipartisan group of local officials for help on his $1.9 trln coronavirus relief plan. He invited a group of mayors and governors to the Oval Office and explained the need to give these officials more help supporting millions of unemployed workers and reopening schools (the administration also prepared new guidelines for reopening schools). More than 400 mayors wrote to leaders in Congress earlier this month to urge them to pass Biden's relief package, but Republicans are backing a much smaller plan. Meanwhile, the US active oil rig count rose by seven to 306 last week, according to Baker Hughes, providing mild headwinds for oil prices. Brent eventually settled at $62.43, fixing $1.29/bbl above the previous settlement.This morning, Brent spiked $1/bbl to $63.5/bbl on fears that cold weather in Texas may disrupt flows from America's largest shale patch. Bloomberg reports that a frigid Arctic blast has already caused crude flowing from wells to slow or come to a complete halt. Traders estimate that a few hundred thousand barrels a day of output in Texas will be lost amid well shutdowns, road transport disruptions and power outages, all due to the extreme weather. So far, major crude pipelines have not been impacted. According to the latest EIA data, Texas produced 4.65 mln bpd of oil on average in November, while total US output averaged 11.1 mln bpd. Meanwhile, a Saudi-led coalition on Sunday intercepted an explosive-laden drone heading toward the kingdom, raising fears of fresh Middle East tensions. These supply risks come at a time when commodity and equity markets are getting a boost from optimism over vaccines and US stimulus.Today, investors will eye a short five-day Urals crude export program for Russian ports in March. The US President's Day holiday today pushes the weekly inventory reports back a day this week. Tomorrow, the EIA drilling productivity report is due. Preliminary DM PMIs come in Friday. A G7 virtual meeting will also take place on Friday. Reuters reports that Covid-19, the global economic recovery and relations with China are the key agenda items. Although Brent may extend its gains and reach resistance at $64.3/bbl, in our view it is likely to consolidate just above support at $63/bbl after its recent rally, with an unlikely break below potentially causing a fall into the $62.2-62.8/bbl range.GOLD TRADES SIDEWAYS WHILE US TREASURY YIELDS RISE ALONG WITH INFLATION EXPECTATIONSGold traded sideways within a $1,815-1,830/oz range on Friday amid a mixed EUR/USD dynamic and despite the 10y US Treasury yield jumping to 1.21%, its highest in nearly 11 months. The University of Michigan consumer sentiment data was behind this move, showing that American households making less than $75,000 are feeling especially pessimistic about their financial futures, despite promises of more federal stimulus measures in the coming months. However, this should increase investor confidence that a significant fiscal stimulus package will be passed by the House of Representatives next week and by Congress in mid-March. US Treasury Secretary Janet Yellen on Friday urged G7 finance leaders to "go big" with fiscal stimulus to recover from Covid-induced economic woes. US President Joe Biden pushed for the first major legislative achievement of his term on Friday, turning to a bipartisan group of local officials for help on his $1.9 trln coronavirus relief plan. This increased investor inflation expectations, while general inflation expectations edged up to a six-year high. Higher inflation boosts gold but also lifts US Treasury yields, which is negative for gold.Gold is trading near $1,820/oz as we write, near the bottom of Friday's trading range. We think this week looks mixed for gold, with the main events being the Fed meeting minutes, eurozone GDP and preliminary DM PMIs. Also this week, a US House committee will meet to discuss the market volatility caused by retail investors piling into GameStop and other highly shorted stocks, which sparked the recent silver rally and also pushed bullion higher. We expect gold to trade within a $1,801-1,840/oz range this week. Upbeat DM PMI data on Friday could push gold above $1,840/oz and consolidation within a $1,850-1,870/oz corridor. Downbeat data could cause gold to retest $1,783/oz support, though we consider this as unlikely.